BOSTON (CNN/Money) -
Last week's Federal Communications Commission decision granting TiVo the "right to innovate" and add a limited file-sharing service to its digital video recorder should have made a banner week for the company.

On Wednesday, as it was awarded 1 of 13 FCC grants to work on "broadcast flag" technologies for digital television, the relatively small ($400 million) company from Alviso, Calif., stood shoulder to shoulder with tech giants such as Microsoft and Sony.

Unfortunately, that wasn't the only news last week.

On Monday, News Corp.'s British DVR firm NDS announced that it will begin providing DVRs to DirecTV by 2005. DirecTV is the biggest source of new subscriptions for TiVo, and Wall Street rightfully saw the announcement as a serious threat to TiVo's future growth.

After the stock initially shot up 15 percent on the FCC news, it fell to a new 52-week low on Wednesday. And by Friday's close, TiVo (TIVO: Research, Estimates) repeated the dubious honor, closing at $4.78, down 11 percent for the week and 32 percent since July 1.

Innovation, as evidenced by the FCC ruling, is not a problem for TiVo. With their advanced features, TiVo's DVR products blow away the competing cable and satellite offerings. And the function allowing recorded programs to be moved to other TiVos should be another winner with consumers. The problem for the company, as evidenced by the NDS/DirecTV announcement, is signing up new customers.

TiVo is in a fight for relevance and finds itself at a crossroads in its brief but high-profile history.

It can continue to strive for mass-market acceptance and success, spending a great deal on advertising, R&D, and promotional efforts in an attempt to differentiate itself from the many commodity DVRs that are given away by cable and satellite networks.

It is working on a strategy that will keep it from having to fight for share in a commodity business, but that means it may end up as a small but profitable niche player in the growing DVR industry.

No one doubts that DVR usage is poised to soar. "Cable DVR is going like gangbusters," says IDC analyst Greg Ireland. And, he notes, the barrier to entry for consumers is lower when they get DVRs directly from their cable providers, rather than through TiVo.

IDC projects that 7 million U.S. households will have DVRs by the end of this year, up from less than 3.5 million in December 2003.

Right now, the smart money on this company is with the shorts. Short interest in the stock is up for the last month, and currently stands at a whopping 33 percent of the float. I'm going to buck the short's trend here, however, and say that this company looks like an acquisition waiting to happen. So maybe this is a decent opportunity to pick up a few shares.

TiVo's market cap has shrunk below $400 million for the first time in more than a year. Its financial outlook for the foreseeable future is still red ink, though there is a lot less of it than there once was. The company currently has only $6.43 million in debt, but has about $138.4 million in cash.

Any number of cable companies, set-top box manufacturers, or makers of software for Internet TV (e.g., Microsoft or Paul Allen's Digeo) could swoop in, streamline TiVo's operations, and pick up the company's innovative feature set at a bargain, thereby giving it a competitive advantage over the cable and satellite offerings.